Swiss-made, by Swiss. So runs Harry Hohmeister’s mantra of choice.
The Swiss International Air Lines chief may be German – and his carrier a wholly owned subsidiary of Germany’s Lufthansa Group, of which he has been a board member since last year – but Hohmeister is unequivocal about the value that lies in his airline’s distinct character.
“It’s a real asset,” he says. “So my headline would be: Swiss-made, by Swiss. Swiss-made by anybody else would not really count. Forget it.”
This reflects the “whole attitude of the country”, he argues. “It’s not China. In China, Chinese-made by Volkswagen works; but Swiss-made by Volkswagen works not. Forget it – it’s a different approach here. It’s not so easy to understand, for ‘big-community’ countries: Chinese, Germans, Americans.”
Accordingly, it is with a degree of autonomy that Hohmeister seeks to run Swiss from his office decorated with aviation photography, near Zurich airport.
“We have a lot of freedom in designing our strategy,” he says. “So: the definition that we want to be a premium airline, the definition of what kind of aircraft we need and where we want to invest in... This, on the first side, is our decision.”
He does, however, acknowledge a need for alignment with Lufthansa Group, whether it is to manage capacity to a particular destination, maintain bargaining power vis-à-vis aircraft manufacturers or ensure the various customer segments are covered. “And there I have to say Lufthansa Group is on the move,” he says.
“When we joined Lufthansa, it was Lufthansa and Swiss,” he recalls. “To say we do things autonomous was much easier, because we were just parallel organisations... ‘Big’ is an advantage, but ‘fast’ also has an advantage, so it was quite clear.”
That picture has changed, however, with the addition to the group of Austrian Airlines, Brussels Airlines, Germanwings and Eurowings. “We have other airlines operating to the same markets or operating on the same itineraries,” says Hohmeister. “We have to do more co-ordination. Otherwise, we do not get the added value out of the consolidation.”
He draws an analogy with a musical ensemble playing a concerto: “Having somebody who is playing the pipe or the guitar or the piano the most professional he can... It has to be somehow co-ordinated to have really good music out of that, although each individual is the best.”
Warming to his theme, he adds: “We might be the best piano player for the Swiss market, but being the best piano player, in my view, is not enough anymore.
“I also have to see how can I participate in Lufthansa Group and this big concerto so that the customer outside, in all segments, has the best offer.
“This is now the interesting part, as Lufthansa executive board member, to see that you get some indications or impulse to the piano player or to the trumpet player – that you give some impulse, but you do not disturb him to be as professional as he is.”
Group-wide, Lufthansa is in the throes of a major transformative effort set in motion by its “Score” cost-cutting and revenue-boosting programme, which was launched by former chief executive Christoph Franz in 2012 and retained by successor Carsten Spohr.
Swiss, notes Hohmeister, can share with its peers the benefit of painful lessons learned a decade ago. “In 2003, 2004, we had very, very difficult times,” he remembers. “Then we had very successful times, and still we are successful – but going on with change management, so we never lean back.
“I think this is learning some other organisations could take away from us: how to do change management – and then change management never stops.”
Hohmeister characterises the early role of Swiss in the Score programme as “just giving our data” toward objectives “inherent in our genes already”. Swiss can also, he contends, serve as something of a philosophical benchmark: “Germans are sometimes very programmatic... Sometimes it’s better to be pragmatic.”
That is not to say a one-size-fits-all approach can be adopted. “If all would just come and say: ‘We want to be a one-to-one copy of Swiss,’ then it won’t work,” says Hohmeister. “If Brussels Airlines want to be a one-to-one copy of Swiss, they will be bankrupt, because the market conditions are completely different in Brussels than in Switzerland. The same is true for Austrian Airlines, and the same also would be true for Lufthansa.
“If Lufthansa were to say: ‘Swiss has the highest margins in the group; we will just copy them’ – this would not be enough.”
No airline within the group is free from the demands of the Score programme – which Lufthansa Group in June admitted would miss its 2015 operating target of €2.3 billion ($3.1 billion). That figure has been revised downward to €2 billion.
“All of us have to be more engaged to make the targets, so that also means Swiss has to do more,” says Hohmeister. In a report on its second-quarter results, Swiss says it is “on course” with Score efforts, which it foresees will add Swfr86 million ($95 million) to a full-year result surpassing 2013’s Swfr264 million.
Amid pressure from Middle Eastern and low-cost carriers, changing growth rates in Europe and forecasts for Asia that are “two levels lower than five years ago”, Swiss has a revenue gap to close, says Hohmeister – not just to mollify Lufthansa, but in its own interests. After all, it has investments to justify: in aircraft, people, IT infrastructure and beyond.
“We need the liquidity to be sustainable in the long run. So therefore, yes, we have to contribute to the situation the Lufthansa group is now in,” says Hohmeister. “It’s not about socialism... It’s really an inherent interest of Swiss, because if we cannot make money enough for our own balance sheet, then how can I go to the shareholder and say it’s a good idea to invest in more assets?
“It makes no sense. Maybe it’s good enough for state-owned airlines somewhere in the Middle East, where the sheikh is giving the money, but for a private organisation being stock market rated, this is not a good argument.”
Among the aircraft assets scheduled to join the Swiss inventory – currently made up of some 90 aircraft, five of them wet-leased – are six Boeing 777-300ERs and 30 Bombardier CSeries CS100 airliners.
For long-term development of the fleet, the Airbus A350-900 will be considered against the 777-300ER, Hohmeister says.
“This is something we have under investigation right now, and of course we always do some comparison,” he says, adding: “I do not care what kind of aircraft we are flying as long as it is the best in terms of return on investment.”
What is certain is that days are numbered for one particular long-haul type: “It is clear we have to get out of the A340-300 fleet,” Hohmeister says.
For narrowbody fleet renewal, meanwhile, Swiss had been scheduled to receive its first CS100 this year. When this was delayed a year, the airline was forced to extend the maintenance cycles of its 14 owned and six leased BAE Systems Avro regional jets.
In a worst-case scenario the leases could be extended, but upkeep of the jets would cause headaches. “This aircraft is quite old... and we have to invest quite a lot of money for a small aircraft to be state of the art,” says Hohmeister. “The question is: for an aircraft where you know it will leave the fleet in the next 12 to 18 months, how much does it make sense to invest so much?”
An alternative type could be leased in, with the costs trading off against savings in maintenance costs. Either way, “capacity-wise, it’s not an issue: we will not have to cancel flights because the Bombardier aircraft is delayed”, says Hohmeister.
With its fleet strategy generally, Swiss is seeking to achieve growth by using bigger aircraft. “We can get more people from the high-end segments, so with a bigger business class for example, but also more people from the lower end with the bigger economy class,” says Hohmeister. “This is true with the 777, for intercontinental services, but it’s also true for European services with the CSeries, which is bringing 30% more capacity per destination to the market.”
As part of its short-haul strategy, Swiss is to open a new base at Geneva – part of plans to address a segment of customers Hohmeister defines as “more flexible, so they don’t care if they fly Monday morning at seven o’clock or Tuesday afternoon at 13:00 – they just want to get somewhere. And they don’t care what kind of service there is on board.”
Hitherto catered for by low-cost carriers, these customers are now to be courted by Swiss under its own brand. “Other airlines – like Air France with Hop! or Iberia with Vueling – they directly copy low-costs.
“They say: ‘My answer to low-cost is low-cost.’ But, sorry to say, those airlines are never able to be as low-cost as Ryanair, for example. It will not work. Forget it.”
Eyeing new segments, Swiss in July rolled out a range of individual travel services dubbed “Swiss Choice”, plus a new pricing concept for European flights from Zurich.
Swiss Choice enables customers to book a preferred seat online, for a fee, or arrange a “special surprise” – such as a bottle of Champagne – for onboard delivery to a travel companion, or pre-order duty-free items. Pre-booking of additional baggage is to be made possible by year-end.
From Zurich to 17 European destinations, meanwhile, Swiss is offering lower round-trip fares with no minimum stay, new one-way fares starting at Swfr89 and business-class fares from Swfr299.
These new concepts align with a drift away from a strategy the airline adopted a decade ago, when it streamlined its operations such that, as Hohmeister puts it, “everything has to be high society”, and retired its 50-seat turboprops. Now, the carrier uses wet-leased Tyrolean Airways Bombardier Q400s on the domestic Zurich-Lugano route. “We are widening our offer palette,” says Hohmeister.
The need to grow into different segments is something Hohmeister says he has learned from Swiss’s partnership with Zurich-based leisure operator Edelweiss Air, which he notes has doubled passenger numbers and revenue since 2008.
“In this segment, there is more movement,” he says. “When I want to go on a duty travel for a company I have to discuss it with the controller, so I end up somewhere in row 45 in economy class. When I go on vacation, I have to discuss with my wife – but the discussion with the wife is easier than the discussion with the controller, so I might end up in some kind of comfort class.
“So the quality of travel, also in terms of value, in the private segment is growing, whereas in the business segment it is shrinking.”
As it strives for broader appeal, Hohmeister’s airline must of course face down the ever-growing threat from Middle Eastern carriers – not least Abu Dhabi-based Etihad Airways, which rather parked its tanks on Swiss’s lawn by taking a stake in Lugano-based Darwin Airline, now rebranded as Etihad Regional.
Hohmeister argues that Gulf airlines in general are “growing much faster than the market is growing because they were ordering the aircraft something like five, six, seven years ago, when everybody believed Asia [was] growing every year by 20%, but now we learn that Asia is growing maybe by 6% per year. So there is simply too much capacity, because they did a miscalculation.”
He adds: “They push all the capacity now on the market, with absurd prices sometimes, which is making the customer happy, but in the long run will not be a sustainable strategy. So what can we do?”
Simply waiting it out is not an option, he says: “There is a lot of state money in this system, by cheap infrastructure costs, by cheap credit lines and debts I only can dream of, so therefore it will not be over soon.”
In the meantime, Hohmeister is calling for support from European regulators and politicians. “I’m not asking for money, I’m not asking for tax favours... I just ask for fair competition,” he says. “If I have the social costs like this because the politicians want it, but they let a system with completely different social costs in here without limitation – this is not fair. We have to talk about capacity limitations.”
As for Switzerland’s relationship with the EU, of which it is not a member, Hohmeister detects in the nation something distinctive that is worth preserving in any stepped-up integration effort. “It’s really the highest-cost location in the world – definitely in Europe – but it’s still competitive.
“How can this be? In theory, impossible – so there must be something which is making this system successful. And this we should not lose.”
However, there is a battle being fought on Swiss’s doorstep between management and pilots. Swiss has concluded a collective labour agreement dubbed CLA14+ with flightcrew at its Swiss European Air Lines division – who operate the Avros and will fly the CSeries and 777-300ERs, and are represented by the IPG union – but remains in dispute with the mainline division’s Airbus pilots, represented by the Aeropers union.
The CLA14+ deal was, Hohmeister recalls, the product of a negotiating effort undertaken from September 2012 until the start of 2014.
“We cannot go to negotiation for another three years and dream of whatever – purple worlds – because the world is not purple. We really have a lot of grey and black skies,” says Hohmeister. “We have to move our aircraft somewhere... and this is what we’re doing now with the Avro pilots.”
Hohmeister contends the Airbus pilots “are not talking about competitiveness so much, but about protectionism. But protectionism is over – forget it, it’s over, cancelled... Every day they do a fantastic job for the company, [but] they should themselves orientate a little bit more to what has happened in the US – then I think we will have a realistic ground for negotiations.”
Tense talks may lie ahead, but Hohmeister’s energy for the task of leading Swiss is undiminished – as becomes obvious when he is asked about career plans beyond the Zurich-based carrier. “I have not the ambition to be the king of something,” he says. “I think we really have a lot of projects running here, and I’d like to implement it and get it done.
“I go home very satisfied if I can say: ‘Wow, mission completed.’ I don’t care about the rank so much.
“I want to make the mission here within Swiss completed, so my target really is that I want to stay until 2016, until the 777 is implemented, the Bombardier is implemented, some of the market activities are implemented [and] the thinking – Swiss made by Swiss – is implemented.
“So if [all] this is implemented, okay, then I will sit here and say: ‘Wow, it’s getting boring.’ Maybe.”
But it’s clear that his attention remains fully on “Swiss-made by Swiss” when he adds: “What would be the next step? I don’t know…”
Source: Cirium Dashboard
